There are three types of bankruptcy, but each one comes with
different parameters and qualifying factors. Find out if any of these options
make sense for your current financial situation.
When you file for chapter 7 bankruptcy, you can discharge
certain types of debts in order to help you with overwhelming financial
obligations you simply can’t meet.
There are some debts that cannot be discharged through
chapter 7, which include:
- Student loans
- Child support
- Tax debt
Qualifying debt that can likely be discharged in chapter 7
included credit card debt, personal loans, and medical debt. The downside of
this type of bankruptcy is that you could potentially lose assets in the
process and will also suffer from bad credit which can take years to recover
In order to qualify for chapter 7 bankruptcy, you must pass
a means test. This involves meeting certain income limits specific to your
state as well as having certain levels of debt. You’ll need to submit
information like records of your income, expenses, and debt.
When you qualify for chapter 7, you may have to sell certain
assets that are non-exempt, such as valuables and investments. The proceeds of
those sales go towards paying off your creditors as part of the settlement.
Depending on your state, your car and house may be considered exempt assets,
meaning you don’t have to sell them.
This decision definitely comes with a lot of major
repercussions. If you’re unsure of how to navigate the process, consider
enlisting the help of a bankruptcy attorney.
Chapter 11 bankruptcy is designed for businesses to
restructure their debt. The idea is to keep the business from going under by
creating a different payment plan with your creditors. Individuals and small
business owners may also be able to implement this type of bankruptcy. Here’s
how it works.
When you voluntarily apply for chapter 11 bankruptcy, you
have four months to create a repayment plan. You must prioritize your creditors
and how you’re going to pay them. The three tiers are priority, secured, and unsecured.
Your repayment plan could last anywhere between six months
and two years. You’ll also need to propose a plan on reducing your business
expenses to improve your cash flow.
Chapter 11 bankruptcy can also apply to individuals in certain scenarios.
If you don’t qualify for other types of bankruptcy, you may
be able to get relief this way. You could potentially renegotiate loan terms to
pay less in interest and extend your payments to make them more manageable.
Just remember that the chapter 11 process is complicated and
costly. It’s definitely smart to weigh all of your options before making a
Chapter 13 bankruptcy allows you to keep your major assets
(such as your home and car) while working out a payment plan to settle other
debts. You must have consistent income in order to qualify and you’ll repay
your creditors over a three to five-year period. The exact timeline depends on
how much you earn each year.
For those with an income above the median, you’ll have five
years to repay and for those with an income below the median, you’ll only have
to pay for three years.
Here are the debt limits for chapter 13 to get an idea if
you could qualify:
- Secured debts (including
- Unsecured debts: $419,275
With secured debts, you have to pay as agreed, otherwise
you’ll have to surrender the asset. You also need to make up for payments that
From there, your unsecured debts are divided between
priority and nonpriority payments. Your priority unsecured debt must be paid in
full. These include things like tax debt, spousal support, or child support.
Your creditors that are categorized as nonpriority unsecured
debt (like credit cards or medical bills) then get a percentage of what is
considered your disposable income. Essentially, once your secured and
prioritized debts are accounted for in your payment plan, any leftover amount
of your income deemed eligible to go towards your payoff plan is used for these
Once you finish your repayment period and meet all the other
requirements, the debt is discharged.
Getting Legal Help
Clearly, there are a lot of laws and rules surrounding the
different types of bankruptcy, which can be difficult to navigate on your own.
But finding an affordable bankruptcy lawyer can be tough. Even the cheapest
lawyers can cost $1,500 or more to help you with the process.
When is it worth it to hire legal help?
In reality, it’s smart to consult with an attorney as soon
as you realize your financial problems are serious. Bankruptcy should be
reserved for people who don’t have a way to keep up with their debts and are
unlikely to repay them in full.
Most bankruptcy attorneys offer a free consultation so you
can get some advice on whether or not bankruptcy is the right choice for you in
this moment. From there, you can see whether or not you qualify, then get a
quote on legal fees.
If you’re filing for chapter 7, you typically need to pay
all of your attorney fees before filing, since the debt could otherwise be
discharged. For chapter 13 bankruptcy, you can usually include your attorney
fees as part of your repayment plan.
Don’t be afraid to interview a few different lawyers to
compare their services and prices. Also look for online reviews to find out
more about their reputation.
Frequently Asked Questions
How much does it cost to file bankruptcy?
There are a number of fees associated with bankruptcy, which vary depending on the type. A filing fee can run you a few hundred dollars and you may also need to pay a conversion fee if you file for the wrong type of bankruptcy. You may also have to pay for credit counseling and/or a financial management class. Utilizing a bankruptcy attorney, even a cheap one, can tack on an extra few thousand dollars.
How long does bankruptcy stay on your credit report?
Chapter 13 bankruptcy stays on your credit report for seven years from the filing date. Chapter 7 bankruptcy, on the other hand, isn’t deleted until ten years after you file. It stays on there longer since your debt wasn’t repaid. However, the impact of either bankruptcy on your credit score lessens over time, even if the event is still listed.
Can you keep your house and car?
In most cases, you’re able to keep both your car and house during bankruptcy as long as you’re current on your payments. It is important to check your state’s law on how these processes work where you live. There are multiple ways you can handle car loans, for example, during bankruptcy so make sure you understand the options and choose what’s best for you.
How long does it take to file for bankruptcy?
When filing for Chapter 7 bankruptcy to discharge your debts, the process takes about four months. During this time, you can file for an automatic stay to stop collectors from coming after debts you owe.
See if a Bankruptcy Attorney Can Help You
Take the first step towards resolution by contacting an affordable bankruptcy lawyer today.
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